Federal Budget 2018 

Many of the reforms in superannuation impact on administration of funds, particularly large APRA funds.

3-Year Cycle For SMSF Audits

Date of effect |  1 July 2019

SMSFs with a history of good record keeping and compliance – that is, three consecutive years of clear audit reports and annual returns lodged on time - will only be required to have their fund audited every three years. The Government has flagged consultation with key stakeholders on this measure (with no further details available at present).

The key issue with this measure is how the three-year cycle will work - is it an audit for one year in three or three years once? 

If the audit is only for the third year of the cycle, then there is a major risk of compliance issues going unnoticed. Having two years with no audits may present opportunities for 'creative' trustees to manipulate the superannuation system. It will be difficult for an auditor to sign-off on the third year without having a level of comfort as to what has transpired in previous years. If the audit is for the prior three years, the benefit for members may be negligible as auditors will need to charge for three years of work. 

The measure is designed to reduce 'red-tape' for trustees but having three years of questions from auditors might just group three years into one. 

Retirement Income Strategy For Super Fund Members

Date of effect | No time period noted

The Superannuation Industry (Supervision) Act 1993 will be amended to introduce a retirement covenant that will require superannuation trustees to formulate a retirement income strategy for superannuation fund members.

The Corporations Act 2001 will also be amended to require providers of retirement income products to report simplified, standardised metrics in product disclosure to assist customer decision making.  

Preventing Inadvertent Breaches Of Concessional Caps

Date of effect | 1 July 2018

Individuals whose income exceeds $263,157 and have multiple employers will be able to nominate that their wages from certain employers are not subject to the superannuation guarantee (SG).

The measure will allow eligible individuals to avoid unintentionally breaching the $25,000 annual concessional contributions cap (and incurring excess contributions tax) as a result of multiple compulsory SG contributions. 

It is anticipated that employees who use this measure will negotiate additional income in lieu of the 9.5% superannuation guarantee.

Exit Fees Scrapped, Fees Capped, And More Transferred To ATO

Date of effect |  1 July 2019

A ban on exit fees from all superannuation funds will be introduced along with a 3% annual cap on passive fees on accounts with balances below $6,000 from 1 July 2019. Superannuation funds will also be required to transfer all inactive superannuation accounts with balances below $6,000 to the ATO.

These changes create a gain of $1.1 billion in the underlying cash balance over the forward estimates. This gain is in part a timing issue reflecting the time taken to reunite lost super balances with their owners.

Opt-In Insurance Inside Super

Date of effect | 1 July 2019

Insurance within superannuation will move from a default framework to an opt-in basis for: 
  • Members with low balances of less than $6,000; 
  • Members under the age of 25 years; and 
  • Members whose accounts have not received a contribution in 13 months and are inactive.
This means that these members will not automatically be provided with insurance inside their superannuation fund but instead will opt-in if they choose.  The Government is concerned that automatic insurance cover is eroding savings with many unaware they have insurance within their fund or within multiple funds. 

The changes will not prevent anyone who wants insurance from being able to obtain it - low balance, young, and inactive members will still be able to opt-in to insurance cover within super. Affected members will have 14 months to decide whether they will opt in to their existing cover or allow it to switch off.

Work Test Exemption For Retirees

Date of effect | 1 July 2019

An exemption to the work test will be introduced for people aged 65 to 74 with superannuation balances below $300,000, who make voluntary contributions to superannuation. The exemption applies in the first year that they do not meet the work test requirements. This measure is really a reprieve for people transitioning to retirement to get their affairs in order. Currently, the work test restricts the ability to make voluntary superannuation contributions for those aged 65-74 to individuals who work a minimum of 40 hours in any 30 day period in the financial year. 

Increasing the maximum number of members in an SMSF

Date of effect | 1 July 2019

The maximum number of allowable members in new and existing SMSFs and small APRA funds will increase from four to six.

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This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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